Chapter 18, Problem 24P

a)

Summary Introduction

To determine: The net present value using the adjusted present value method.

Introduction:

Net present value is the difference among the present value of cash outflow and present value of cash inflow for a particular period of time.

b)

Summary Introduction

To determine: The WACC and chances in WACC.

Introduction:

WACC (weighted average cost of capital) is the rate at which a firm is predicted to pay, on an average, to all the security holders in order to finance its assets.

Net present value is the difference among the present value of cash outflow and present value of cash inflow for a particular period of time.

c)

Summary Introduction

To determine: The net present value using WACC method.

Introduction:

WACC (weighted average cost of capital) is the rate at which a company is expected to pay, on an average, to all the security holders in order to finance its assets.

Net present value is the difference between the present value of cash outflow and present value of cash inflow over a specified period of time.

d)

Summary Introduction

To determine: The equity cost of capital and how it changes.

Introduction:

The unlevered cost of capital is an assessment using either an actual debt-free or hypothetical rate of return used to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate that the project is less expensive than a levered cost of capital.

e)

Summary Introduction

To determine: The equity cost of capital, how it changes, and compare the answer with part (a).

Introduction:

The unlevered cost of capital is an assessment using either an actual debt-free or hypothetical rate of return used to measure a firm’s cost to implement a particular capital project. The unlevered cost of capital must demonstrate that the project is less expensive than a levered cost of capital.